The department is ignoring a partial partition my client's family made in April 1979, even though the Income-tax Officer recognised it and gave the family the benefit of it in that very assessment year. Is there any authority that the recognition once given must stand?
No — the Supreme Court has held the opposite, and by a Constitution Bench. In Union of India v. M.V. Valliappan the Court allowed the Revenue's appeals, set aside the judgments of the Madras and Karnataka High Courts which had struck down s.171(9) of the Income-tax Act, 1961 and s.20A of the Wealth-tax Act, 1957, and dismissed the writ petitions challenging the sub-section. Dealing directly with the argument that a partial partition of 13 April 1979 had been recognised in the assessment year and the benefit given to the assessee, the Court held that this "has no significance in view of crystal clear language used in the sub-section that partial partition taking place after the cut off date is not to be inquired into and if inquired the findings would be null and void."
Decided by the Supreme Court (S.P. Bharucha J, B.N. Kirpal J, S. Rajendra Babu J, S.S.M. Quadri J and M.B. Shah J (judgment delivered by M.B. Shah J)) on 1999-07-27, reported as Appeal (civil) 1612 of 1988; equivalent citations printed on the source page include (1999) 238 ITR 1027, 1999 (6) SCC 259, AIR 1999 SC 2526 and (1999) 105 Taxman 605. It bears on section 171(9), section 171(2), section 171(3), section 171, section 4, section 5, section 256(2), section Wealth-tax Act 1957 s.20A of the Income Tax Act 1961, in Assessment & Scrutiny, How Tax Law Is Read and Demand, Recovery & Stay matters.
This closes off the two arguments practitioners still run against s.171(9). The first is legislative competence: the Court held that Parliament has the authority to delete or amend any provision of the Income-tax Act, that Entry 82 of List I sustains it, and that because partial partition was not recognised at all under the Indian Income-tax Act, 1922 and was recognised only under the 1961 Act, "All that is done by the amendment is to restore the status quo ante that prevailed prior to 1961 Act." The second is Article 14, both as to the classification and as to the choice of 31 December 1978 as the cut-off. On the classification the Court found an intelligible basis and a rational nexus with the object of preventing the creation of further multiple Hindu undivided families for reduction of tax liabilities. On the date it held that the cut-off "cannot be said to be arbitrary", noting that the Amending Bill was introduced in June 1980 and given effect from the assessment year 1980-81, and applying the settled rule that the choice of a date as a basis for classification cannot always be dubbed arbitrary unless shown to be capricious or whimsical. The Court also recorded the object of the amendment as stated in the Amending Act's objects and reasons — that multiple Hindu undivided families were being created by partial partitions as regards persons or properties or both, resulting in tax reduction or evasion. Note carefully what the decision does NOT do: it says nothing about total partitions, which remain claimable and recordable under s.171(2) and (3). And note that the Court in terms rejected the equity argument: a family that acted for years on a recognised post-1978 partial partition has no accrued protection.
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By a common judgment dated 13 January 1988 in a batch of writ petitions (M.V. Valliappan & Ors. v. Income-Tax Officer & Others, 170 ITR 238) the Madras High Court struck down s.171(9) of the Income-tax Act, 1961 as violative of Article 14 of the Constitution and as suffering from the vice of legislative incompetence, and further held that the sub-section entrenched upon the charging provisions in s.4 and enlarged the scope of ss.4 and 5. The Karnataka High Court decided to the same effect on 9 November 1993 and 25 November 1992. The Gujarat High Court had rejected applications under s.256(2) of the Act on 29 June 1993. The Union of India appealed by special leave against all of these. Among the respondents was a family which had effected a partial partition on 13 April 1979 — after the 31 December 1978 cut-off in s.171(9) — and which contended that the partial partition had been recognised in the assessment year and the benefit given to the assessee.
The appeals were allowed. The judgments and orders holding s.171(9) of the Income-tax Act, 1961 and s.20A of the Wealth-tax Act, 1957 unconstitutional were quashed and set aside; the writ petitions before the Madras and Karnataka High Courts challenging the validity of s.171(9) and seeking consequential reliefs were dismissed; and the Gujarat High Court's orders rejecting the s.256(2) applications were set aside with a direction to the Income Tax Appellate Tribunal, Ahmedabad to refer the questions to the High Court. There was no order as to costs. On the merits the Court held that the insertion of s.171(9) is within Parliament's legislative competence, that it does not violate Article 14 either in its classification or in its choice of the 31 December 1978 cut-off date, and that a partial partition falling after that date has no significance for income-tax even where it was recognised and the benefit given in an earlier assessment.
On legislative competence the Court reasoned that Parliament has the authority to delete or amend any provision of the Income-tax Act; that legislative competence is to be decided on the basis of the Constitution, Entry 82 of List I of the Seventh Schedule empowering Parliament to legislate for taxes on income other than agricultural income; that partial partition of a Hindu undivided family was not recognised under the Indian Income-tax Act, 1922 and was recognised only under the 1961 Act, so that the amendment restores the status quo ante; and that it is for the legislature to decide whether the recognition should continue, and to amend or delete it if it has led to abuse. The Court relied on Balaji v. Income Tax Officer, Special Investigation Circle, Akola (1961) 63 ITR 393 for the proposition that entries in the Lists are fields of legislation, not powers, and that Entry 82 can sustain a law made to prevent evasion of tax. On Article 14 the Court held at paragraph 14 that differentiation is not always discriminatory, that where there is a rational nexus with the object sought to be achieved the differentiation is not discriminatory, that whether a better basis of differentiation could have been evolved is within the legislature's domain, that here there is an intelligible basis and a rational nexus with the object of preventing the creation of further multiple Hindu undivided families for reduction of tax liabilities, and that the legislature is not obliged to withdraw a benefit already conferred in order to sustain the section. On the cut-off date it held that 31 December 1978 cannot be said to be arbitrary, the Amending Bill having been introduced in June 1980 and given effect from the assessment year 1980-81, and that the choice of a date as a basis for classification cannot always be dubbed arbitrary unless shown to be capricious or whimsical — while fixing a line a point is necessary and there is no mathematical or logical way of fixing it. On the construction of the sub-section the Court held that its effect is that partial partitions taking place on or after 1 January 1979 are not to be recognised, that no inquiry under sub-section (2) shall be held, and that even a completed inquiry and finding would be null and void, so that the contention founded on recognition already given in an assessment year has no significance.
In the present case, there is intelligible basis for differentiation and the classification is having rational nexus of achieving the object of preventing the creation of further multiple Hindu undivided families for reduction of tax liabilities.
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Handle my notice → Ask a CA on WhatsAppNo — the Supreme Court has held the opposite, and by a Constitution Bench. In Union of India v. M.V. Valliappan the Court allowed the Revenue's appeals, set aside the judgments of the Madras and Karnataka High Courts which had struck down s.171(9) of the Income-tax Act, 1961 and s.20A of the Wealth-tax Act, 1957, and dismissed the writ petitions challenging the sub-section. Dealing directly with the argument that a partial partition of 13 April 1979 had been recognised in the assessment year and the benefit given to the assessee, the Court held that this "has no significance in view of crystal clear language used in the sub-section that partial partition taking place after the cut off date is not to be inquired into and if inquired the findings would be null and void." This was decided by the Supreme Court (S.P. Bharucha J, B.N. Kirpal J, S. Rajendra Babu J, S.S.M. Quadri J and M.B. Shah J (judgment delivered by M.B. Shah J)) and bears on section 171(9), section 171(2), section 171(3), section 171, section 4, section 5, section 256(2), section Wealth-tax Act 1957 s.20A of the Income Tax Act 1961. It is reported as Appeal (civil) 1612 of 1988; equivalent citations printed on the source page include (1999) 238 ITR 1027, 1999 (6) SCC 259, AIR 1999 SC 2526 and (1999) 105 Taxman 605. This closes off the two arguments practitioners still run against s.171(9). The first is legislative competence: the Court held that Parliament has the authority to delete or amend any provision of the Income-tax Act, that Entry 82 of List I sustains it, and that because partial partition was not recognised at all under the Indian Income-tax Act, 1922 and was recognised only under the 1961 Act, "All that is done by the amendment is to restore the status quo ante that prevailed prior to 1961 Act." The second is Article 14, both as to the classification and as to the choice of 31 December 1978 as the cut-off. On the classification the Court found an intelligible basis and a rational nexus with the object of preventing the creation of further multiple Hindu undivided families for reduction of tax liabilities. On the date it held that the cut-off "cannot be said to be arbitrary", noting that the Amending Bill was introduced in June 1980 and given effect from the assessment year 1980-81, and applying the settled rule that the choice of a date as a basis for classification cannot always be dubbed arbitrary unless shown to be capricious or whimsical. The Court also recorded the object of the amendment as stated in the Amending Act's objects and reasons — that multiple Hindu undivided families were being created by partial partitions as regards persons or properties or both, resulting in tax reduction or evasion. Note carefully what the decision does NOT do: it says nothing about total partitions, which remain claimable and recordable under s.171(2) and (3). And note that the Court in terms rejected the equity argument: a family that acted for years on a recognised post-1978 partial partition has no accrued protection. If it applies to you, the first step is this: Abandon any constitutional attack on s.171(9); it was decided against the assessee by a Bench of five Judges and the writ petitions were dismissed.
By a common judgment dated 13 January 1988 in a batch of writ petitions (M.V. Valliappan & Ors. v. Income-Tax Officer & Others, 170 ITR 238) the Madras High Court struck down s.171(9) of the Income-tax Act, 1961 as violative of Article 14 of the Constitution and as suffering from the vice of legislative incompetence, and further held that the sub-section entrenched upon the charging provisions in s.4 and enlarged the scope of ss.4 and 5. The Karnataka High Court decided to the same effect on 9 November 1993 and 25 November 1992. The Gujarat High Court had rejected applications under s.256(2) of the Act on 29 June 1993. The Union of India appealed by special leave against all of these. Among the respondents was a family which had effected a partial partition on 13 April 1979 — after the 31 December 1978 cut-off in s.171(9) — and which contended that the partial partition had been recognised in the assessment year and the benefit given to the assessee. The matter was decided on 1999-07-27 by the Supreme Court (S.P. Bharucha J, B.N. Kirpal J, S. Rajendra Babu J, S.S.M. Quadri J and M.B. Shah J (judgment delivered by M.B. Shah J)). On those facts the Supreme Court held as follows. The appeals were allowed. The judgments and orders holding s.171(9) of the Income-tax Act, 1961 and s.20A of the Wealth-tax Act, 1957 unconstitutional were quashed and set aside; the writ petitions before the Madras and Karnataka High Courts challenging the validity of s.171(9) and seeking consequential reliefs were dismissed; and the Gujarat High Court's orders rejecting the s.256(2) applications were set aside with a direction to the Income Tax Appellate Tribunal, Ahmedabad to refer the questions to the High Court. There was no order as to costs. On the merits the Court held that the insertion of s.171(9) is within Parliament's legislative competence, that it does not violate Article 14 either in its classification or in its choice of the 31 December 1978 cut-off date, and that a partial partition falling after that date has no significance for income-tax even where it was recognised and the benefit given in an earlier assessment.
On legislative competence the Court reasoned that Parliament has the authority to delete or amend any provision of the Income-tax Act; that legislative competence is to be decided on the basis of the Constitution, Entry 82 of List I of the Seventh Schedule empowering Parliament to legislate for taxes on income other than agricultural income; that partial partition of a Hindu undivided family was not recognised under the Indian Income-tax Act, 1922 and was recognised only under the 1961 Act, so that the amendment restores the status quo ante; and that it is for the legislature to decide whether the recognition should continue, and to amend or delete it if it has led to abuse. The Court relied on Balaji v. Income Tax Officer, Special Investigation Circle, Akola (1961) 63 ITR 393 for the proposition that entries in the Lists are fields of legislation, not powers, and that Entry 82 can sustain a law made to prevent evasion of tax. On Article 14 the Court held at paragraph 14 that differentiation is not always discriminatory, that where there is a rational nexus with the object sought to be achieved the differentiation is not discriminatory, that whether a better basis of differentiation could have been evolved is within the legislature's domain, that here there is an intelligible basis and a rational nexus with the object of preventing the creation of further multiple Hindu undivided families for reduction of tax liabilities, and that the legislature is not obliged to withdraw a benefit already conferred in order to sustain the section. On the cut-off date it held that 31 December 1978 cannot be said to be arbitrary, the Amending Bill having been introduced in June 1980 and given effect from the assessment year 1980-81, and that the choice of a date as a basis for classification cannot always be dubbed arbitrary unless shown to be capricious or whimsical — while fixing a line a point is necessary and there is no mathematical or logical way of fixing it. On the construction of the sub-section the Court held that its effect is that partial partitions taking place on or after 1 January 1979 are not to be recognised, that no inquiry under sub-section (2) shall be held, and that even a completed inquiry and finding would be null and void, so that the contention founded on recognition already given in an assessment year has no significance. In the words reproduced by the source cited on this page: "In the present case, there is intelligible basis for differentiation and the classification is having rational nexus of achieving the object of preventing the creation of further multiple Hindu undivided families for reduction of tax liabilities." The decision followed or applied Balaji v. Income Tax Officer, Special Investigation Circle, Akola and Others (1961) 63 ITR 393 — relied on for the proposition that Entry 82 of List I can sustain a law made to prevent evasion of tax; M.V. Valliappan & Ors. v. Income-Tax Officer & Others, 170 ITR 238 (Madras High Court, 13 January 1988) — SET ASIDE by this judgment; it is not authority for anything and its three numbered conclusions are the opposite of what the Supreme Court held.
It was decided by the Supreme Court on 1999-07-27 and is reported as Appeal (civil) 1612 of 1988; equivalent citations printed on the source page include (1999) 238 ITR 1027, 1999 (6) SCC 259, AIR 1999 SC 2526 and (1999) 105 Taxman 605. Binding on every court and authority in India. A Supreme Court decision binds every assessing officer, every Commissioner (Appeals), every bench of the Income Tax Appellate Tribunal and every High Court in India. An officer who declines to follow it is acting contrary to law, and that refusal is itself a ground of appeal. On section 171(9), section 171(2), section 171(3), section 171, section 4, section 5, section 256(2), section Wealth-tax Act 1957 s.20A, the practical question is whether the facts of your own notice match the facts of this case closely enough for the same rule to apply.
It helps the department, and it appears in this library for that reason — you need to know what the Assessing Officer will cite against you. The appeals were allowed. The judgments and orders holding s.171(9) of the Income-tax Act, 1961 and s.20A of the Wealth-tax Act, 1957 unconstitutional were quashed and set aside; the writ petitions before the Madras and Karnataka High Courts challenging the validity of s.171(9) and seeking consequential reliefs were dismissed; and the Gujarat High Court's orders rejecting the s.256(2) applications were set aside with a direction to the Income Tax Appellate Tribunal, Ahmedabad to refer the questions to the High Court. There was no order as to costs. On the merits the Court held that the insertion of s.171(9) is within Parliament's legislative competence, that it does not violate Article 14 either in its classification or in its choice of the 31 December 1978 cut-off date, and that a partial partition falling after that date has no significance for income-tax even where it was recognised and the benefit given in an earlier assessment. It arises in Assessment & Scrutiny, How Tax Law Is Read and Demand, Recovery & Stay matters, on section 171(9), section 171(2), section 171(3), section 171, section 4, section 5, section 256(2), section Wealth-tax Act 1957 s.20A of the Income Tax Act 1961, and was decided by S.P. Bharucha J, B.N. Kirpal J, S. Rajendra Babu J, S.S.M. Quadri J and M.B. Shah J (judgment delivered by M.B. Shah J). Before relying on it, read the source linked on this page and check whether it has since been distinguished, overruled or overtaken by an amendment to the Income Tax Act. In practice the steps that follow from it are these. Do not build a case on an earlier s.171(3) order recognising a post-1978 partial partition. The Court held such recognition has no significance because the sub-section makes the finding null and void. Where the department relies on Valliappan, check first that what happened was a PARTIAL partition as defined in the Explanation to s.171 — partial as to persons, or as to properties, or both. Valliappan decides nothing about a total partition. If your matter is under the Wealth-tax Act, note that the same judgment set aside the decisions holding s.20A of that Act unconstitutional. For a family still holding undivided property, treat a total partition claimed and recorded under s.171(2) and (3) as the only route that the Act recognises after 31 December 1978.
Still good law. This is a decision of a five-Judge Bench upholding the sub-section, and the statutory text as printed on six departmental editions from Year 1990 to Year 2011 is unchanged from the text the Court construed. I did NOT carry out a citator check for later treatment of this judgment; that check remains to be done. No source could be cited for that finding. Checking whether an authority still stands matters as much as knowing what it held: a decision may be overruled on one point and survive on another, or the provision it interprets may have been amended since. Read the source and the editor's note on this page before relying on it in a reply to an Assessing Officer or in an appeal.
TWO CAUTIONS ABOUT THIS DOCUMENT. First, the passage on the source page that reads "(1) Section 171(9) of the Income-tax Act, 1951, cannot be sustained... (2) ... is also void on the ground of violation of Article 14... (3) ... entrenches upon the charging provisions in Section 4..." is NOT the Supreme Court speaking. Those are the conclusions of the MADRAS HIGH COURT being reproduced in the Supreme Court's judgment before it sets them aside, and they include an obvious typographical error ("1951" for "1961"). Anyone reading the fragment cold could mistake them for the holding; they are its opposite. Second, my first fetch of the print URL returned the header and the disposal with the body replaced by the placeholder "[Full judgment text as provided in source document follows...]" — that placeholder is the fetch layer's, not the judgment's, and I did not treat anything inside it as read. The reasoning and the disposal quoted in this entry were both read a second time, in the Court's own consecutive words, through https://indiankanoon.org/docfragment/1156980/, which is where the paragraph number 14 comes from. PARAGRAPH LOCATORS: I established paragraph 14 by seeing the numeral printed at the head of the transcribed stretch. I did NOT establish how many paragraphs the judgment has in total and I have therefore given no locator for the legislative-competence passage or for the disposal, both of which I read as continuous text without a visible number. No ITR or SCC citation is asserted beyond the equivalent-citations block printed on the source page, which is reproduced in 'reported'. CITATION CAUTION: the judgment itself prints the citation for Balaji as "(1961) 63 ITR 393". That string is reproduced here exactly as the Supreme Court printed it, but it is internally inconsistent — volume 63 of the Income Tax Reports is of 1967, so the year and the volume cannot both be correct, and a reader looking up "63 ITR 393" will not find the case. I have not independently established the correct citation and do not assert one. This library shows the verification state of every entry openly. This entry has not yet been read in full by a chartered accountant. The summary reflects the sources listed on this page. Read the source before you rely on it in a reply to an Assessing Officer or in an appeal before the Commissioner (Appeals) or the Income Tax Appellate Tribunal.
The appeals were allowed. The judgments and orders holding s.171(9) of the Income-tax Act, 1961 and s.20A of the Wealth-tax Act, 1957 unconstitutional were quashed and set aside; the writ petitions before the Madras and Karnataka High Courts challenging the validity of s.171(9) and seeking consequential reliefs were dismissed; and the Gujarat High Court's orders rejecting the s.256(2) applications were set aside with a direction to the Income Tax Appellate Tribunal, Ahmedabad to refer the questions to the High Court. There was no order as to costs. On the merits the Court held that the insertion of s.171(9) is within Parliament's legislative competence, that it does not violate Article 14 either in its classification or in its choice of the 31 December 1978 cut-off date, and that a partial partition falling after that date has no significance for income-tax even where it was recognised and the benefit given in an earlier assessment.
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